“October saw operating conditions in the Japanese manufacturing industry improve at the sharpest pace for over three years, driven by a surge in new orders. The data signalled that the latest expansion was largely demand-driven and apparently unimpeded by the Prime Minister’s recent confirmation of a sales tax hike next April.

“However, whilst new order growth hit a four-year high and production grew at a similarly sharp pace, employment failed to follow suit in October. Payroll numbers were broadly flat for a third consecutive month and appeared to have been thus far unaffected by the structural reforms constituting Prime Minister Abe’s “third arrow”.

“Firms’ reluctance to hire may well indicate uncertainty regarding the future, but could also stem from the inflexibility of Japan’s labour market. The sustainability of the recent growth trend looks set to be tested by the labour market rigidities, as backlogs of work continue to rise.”